Class 17 Bank Management Stress Test

Class 17 Bank Management Stress Test - b) Speculative...

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Bank Stress Test Example Grading will be on I. & II only. Parts III – V are thought questions that will be graded only on effort! I. Below is a basic balance sheet for a bank showing Assets on the left side and Liabilities and Equity on the right side. The main classes of Assets and Liabilities are listed. CNB Assets Liabilities Loans: 2400 Deposits:2200 Borrowing: Equity (Bank Capital) 200 SNB Assets Liabilities Loans: 8000 Deposits:7800 Borrowing: Equity (Bank Capital) 200 Using this balance sheet format, create a balance sheet for two banks: a) Conservative National Bank [CNB] with Equity = 200 and leverage = 12
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Unformatted text preview: b) Speculative National Bank [SNB] with Equity = 200 and leverage = 40 II. Assume each bank is earning a profit of 1% of Assets. Calculate the ROE for each bank: a. ROE for CNB = b. ROE for SNB = III. Briefly discuss some factors influencing leverage. IV. Examine the credit risk—risk of insolvency—of these two banks under the stress of 5% each banks loans turning out to bad loan scenario as a consequence of a “financial” crisis. V. Explain briefly the problem of bailouts for the banking system...
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This note was uploaded on 02/22/2012 for the course MANEC 453 taught by Professor Jerrynelson during the Winter '10 term at BYU.

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Class 17 Bank Management Stress Test - b) Speculative...

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